'Reconstruction Resumes in Bangbae 6 District Amid Tenant Conflicts'

Compensation Issues and Eviction Lawsuit Suspended for 2 Years
Constitutional Court Rules Article 81(1) of Provincial Road Act Constitutional
Demolition to Begin as Early as July
Project Delays Prevent Avoidance of Sale Price Ceiling

[Asia Economy Reporter Onyu Lim] The reconstruction project of detached houses in Bangbae 6 District, Seocho-gu, Seoul, which had been halted for two years due to tenant compensation conflicts, is set to resume. This follows the recent Constitutional Court ruling that the current law, which exempts reconstruction associations from the obligation to compensate tenants, is constitutional. The association plans to complete relocation by May and begin full-scale demolition work as early as July. However, since approximately 6 billion KRW in compensation has already been paid under Seoul City's tenant measures for detached house reconstruction implemented in April last year, the project’s profitability has taken a significant hit.

According to the urban maintenance industry on the 29th, the Bangbae 6 District reconstruction association plans to complete relocation by May and start demolition work as early as July. The Bangbae 6 District reconstruction involves demolishing detached houses around 58-5, Bangbae-ro 33-gil, Seocho-gu, and building a new apartment complex with 1,131 units. The project received management disposition approval in December 2017 and began relocation in May 2018, achieving 96% relocation completion. However, the schedule was halted due to an eviction lawsuit filed by commercial tenants.

Furthermore, the Seoul Central District Court, which handled the eviction lawsuit at the time, requested a constitutional review from the Constitutional Court, citing that Article 81, Paragraph 1 of the Urban and Residential Environment Maintenance Act (UREMA), which mandates compensation only for redevelopment tenants, might be unconstitutional. The argument was that "distinguishing redevelopment and reconstruction projects based on the condition of maintenance infrastructure violates the principle of equality, and the relevant law clause implying that reconstruction tenants cannot receive compensation is potentially unconstitutional."

However, on the 23rd, the Constitutional Court ruled the law constitutional with an 8 to 1 decision. This came about one year and five months after the request. According to the decision document obtained by Asia Economy, the majority of justices explained that "unlike redevelopment, where becoming a union member is mandatory regardless of consent, reconstruction has weaker compulsion," and "considering the complex circumstances of tenants is very inefficient when even landlords are uncertain about whether they will become union members in reconstruction projects." They also noted, "Since it takes several years to get management disposition approval, tenants renting buildings scheduled for or undergoing reconstruction could anticipate suspension of use and enjoyment, and lease contracts reflecting this in the rent were possible."

With the constitutional ruling, the eviction lawsuit between the Bangbae 6 District association and tenants, which had been suspended, is expected to conclude by May. Kang Dongwon, lead attorney at Law Firm Justice, stated, "The Constitutional Court's decision makes the tenants' loss in Bangbae 6 District almost certain," but also evaluated it as "a conservative ruling considering social trends such as the implementation of the reconstruction excess profit recovery system."

Although Bangbae 6 District is about to proceed with construction after many twists and turns, it has suffered significant losses. This is because the association already paid compensation to tenants in compliance with Seoul City's detached house reconstruction tenant measures implemented in April last year. Seoul City promised incentives such as increased floor area ratio, but concerns remain about profitability deterioration due to project delays. A representative of the Bangbae 6 District association said, "After appraisal, we have paid about 6 billion KRW in subsidies to tenants," adding, "Interest alone due to project delays amounts to 1.3 billion KRW per month." Additionally, due to the delay in the project schedule, the grace period for the private land price ceiling system, which expires in July, cannot be avoided.